13 May 2014
Australian budget eyed - Westpac
FXStreet (Bali) - The Australian data calendar offers only modest distraction ahead of the Budget, notes Sean Callow, FX Strategist at Westpac.
Key Quotes
"At 11:30am Syd/9:30am Sing/HK we see Mar housing finance approvals. The median forecast on BBG is +1% but a few responses are missing; Westpac’s -1.5% m/m forecast may not be quite the outlier it appears. After a strong 2013, we believe the overall growth trend is topping out. Industry figures suggest a softer reading in Mar after +2.3% in Feb. Q1 house prices are due at the same time. We look for +1.5% q/q but don’t place as much weight on this measure as on RP Data-Rismark, which has already released April data."
"China’s key April activity data is due at 3:30pm Syd/1:30pm local. Industrial production is seen ticking back up to 8.9% y/y from 8.8% in March, which was the slowest pace of expansion since April 2009. Fixed asset investment YTD is expected to have risen 17.7% y/y and the less watched retail sales report steady at 12.2% y/y. Still in China, US Treasury Secretary Lew is due in Beijing, which adds interest to the daily USD/CNY fixing."
"Australia’s FY14/15 Budget document is due at 7:30pm Syd/5:30pm Sing/HK/10:30am London. There is usually no notable AUD reaction to the annual budget release but this year’s has drawn a lot more attention than most, given it is the first delivered by a newly elected Coalition government since 1996 and thus has far more political importance than usual given Coalition pledges to cut the deficit."
"The mid-year review (MYEFO) in Dec projected a deficit of –A$47bn in 2013/14, -3.0%/GDP, narrowing to -1%/GDP by 2016/17. Growth forecasts in MYEFO were arguably too gloomy so we expect that around $4bn per year of the expected improvement in the outlook to be revealed today will be due simply to higher growth forecasts. There should also be about $2bn per year in the two key new revenue measures, an increase in the top income tax rate and higher excise on petrol. Westpac also looks for spending cuts totalling $3bn in FY14/15, rising to $4.5bn by 2016/17. An offset to the bottom line should come from around -$1bn per year in infrastructure spending (seemingly entirely road construction). Larger numbers on infrastructure cited in the media probably involve adding new spending to plans of the previous government."
"All this should produce a deficit falling to -$26bn in 2014/15 (-1.6%/GDP), tapering to -$8bn by 2016/17, -0.4% of GDP. The infrastructure spending offset should mean the net drag on growth from this budget is less dramatic than in 1996, so with market pricing for RBA tightening having already pushed out to Sep 2015, there should be little immediate market reaction. With net debt likely to still be low at 14% of GDP by 2017, ratings agencies should reaffirm Australia’s AAA status in the hours following the release."
Key Quotes
"At 11:30am Syd/9:30am Sing/HK we see Mar housing finance approvals. The median forecast on BBG is +1% but a few responses are missing; Westpac’s -1.5% m/m forecast may not be quite the outlier it appears. After a strong 2013, we believe the overall growth trend is topping out. Industry figures suggest a softer reading in Mar after +2.3% in Feb. Q1 house prices are due at the same time. We look for +1.5% q/q but don’t place as much weight on this measure as on RP Data-Rismark, which has already released April data."
"China’s key April activity data is due at 3:30pm Syd/1:30pm local. Industrial production is seen ticking back up to 8.9% y/y from 8.8% in March, which was the slowest pace of expansion since April 2009. Fixed asset investment YTD is expected to have risen 17.7% y/y and the less watched retail sales report steady at 12.2% y/y. Still in China, US Treasury Secretary Lew is due in Beijing, which adds interest to the daily USD/CNY fixing."
"Australia’s FY14/15 Budget document is due at 7:30pm Syd/5:30pm Sing/HK/10:30am London. There is usually no notable AUD reaction to the annual budget release but this year’s has drawn a lot more attention than most, given it is the first delivered by a newly elected Coalition government since 1996 and thus has far more political importance than usual given Coalition pledges to cut the deficit."
"The mid-year review (MYEFO) in Dec projected a deficit of –A$47bn in 2013/14, -3.0%/GDP, narrowing to -1%/GDP by 2016/17. Growth forecasts in MYEFO were arguably too gloomy so we expect that around $4bn per year of the expected improvement in the outlook to be revealed today will be due simply to higher growth forecasts. There should also be about $2bn per year in the two key new revenue measures, an increase in the top income tax rate and higher excise on petrol. Westpac also looks for spending cuts totalling $3bn in FY14/15, rising to $4.5bn by 2016/17. An offset to the bottom line should come from around -$1bn per year in infrastructure spending (seemingly entirely road construction). Larger numbers on infrastructure cited in the media probably involve adding new spending to plans of the previous government."
"All this should produce a deficit falling to -$26bn in 2014/15 (-1.6%/GDP), tapering to -$8bn by 2016/17, -0.4% of GDP. The infrastructure spending offset should mean the net drag on growth from this budget is less dramatic than in 1996, so with market pricing for RBA tightening having already pushed out to Sep 2015, there should be little immediate market reaction. With net debt likely to still be low at 14% of GDP by 2017, ratings agencies should reaffirm Australia’s AAA status in the hours following the release."